FDIC to Issue Securities Backed by $500 Million of Residential Mortgages

The Federal Deposit Insurance Corp. plans to issue securities backed by about $500 million of home mortgages acquired from failed banks, leaning again on guarantees to help sell the debt.

The FDIC will back about 85 percent of bonds created for the offering and it may not sell the deal’s junior-ranked notes, which will lose principal first amid any defaults on the underlying loans, David Barr, an agency spokesman, said.

“The decision hasn’t been made yet,” he said today in a telephone interview. “We may sell all or a portion of the certificates at some point in the future,”

The FDIC, which has closed more than 250 banks since 2008, began raising cash in the bond market for the first time since the early 1990s in March. The Washington-based agency that month sold $3.8 billion of guaranteed notes in three deals.

As of May 31, the agency held about $32 billion of assets from failed banks excluding about $7.9 billion of interests in limited liability companies that it has also been creating to help offload its holdings, Barr said.

Two of the FDIC’s March bond sales were backed by its loans to such companies, while the other transaction was a repackaging of existing mortgage bonds.

Barr declined to discuss the timing of the latest sale. RBS Securities Inc. is underwriting the transaction.

The FDIC-backed debt is probably most comparable to atypical types of so-called agency mortgage bonds carrying government-backed guarantees, such as Washington-based Fannie Mae’s securities tied to multifamily mortgages, said David Land, a money manager at St. Paul, Minnesota-based Advantus Capital Management Inc., which oversees about $18 billion.

An investor may want to accept similar yields as found with those types of securities, “depending on how much you value liquidity,” Land said in a telephone interview.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

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